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Crestwood Associates

Who, What, and Why of Financial Reporting For Not-For Profit Organizations


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    Does your not-for-profit organization have special financial reporting requirements?  Do you need to track grants, donor contributions, fund allocations, and employee time and salaries, and then report this information accurately to various constituencies including state and federal agencies?

     For many not-for-profit organizations, tracking restricted funds or large grants from corporate donors or government funding is demanding and time consuming.  If you’re like many not-for-profits, you’re constantly juggling reporting and administrative tasks while doing the real work of your organization.

     Microsoft Dynamics GP has modules designed specifically for not-for-profits and their special needs.  These modules include: financial management, grant management, reporting, encumbrance management and commitment management.

     But beyond required allocated grant or fund tracking, more general expenses should also be tracked to provide more detailed and more complete financial management information.

    Ideally all accounting transactions at a non-profit organization should answer three questions: ‘who, what, and why.’ Determining who, what, and why is the concept behind most typical non-profit reporting requirements and management.

    For funding coming in:

    • Who provided the funds?
    • What type of revenue is it?
    • Why was the income generated? Does it need to be spent in a certain way?

    And for expenses going out:

    • Who is the expense going to? And possibly who is this money coming from? 
    • What is the expense for? 
    • Why was this money being spent? And is it tied to a specific allocation?

    To answer the question ‘why’ the expense was incurred, information will need to be gathered in a third area – the functional purpose of the expense.  Assigning the expense to a functional area of the organization can provide better visibility on why the expense was incurred.  

    Not only is this often necessary to comply with regulatory entities, and to provide a system to financially manage the organization, but it provides the information needed to track the costs of a program against the value or revenue it generates.

    So for example, for a Membership Association, an invoice from the local printer may be allocated to expense type of ‘Printed Materials’ on the chart of account. But to answer the question ‘why’, it might be useful to assign this expense to, for instance,  the ‘Classroom Education’ department or program. 

    This means every transaction should be tracked with a code corresponding to the who, the what, and the why of that transaction. The better you can define and manage how these transactions are controlled, the higher-quality, more accurate reports you will produce.  And if your accounting system cannot slice and dice your numbers these three ways, you might consider an upgrade of your financial software.  

    So for better non-profit management, make sure you collect the data you need to answer these three questions – who, what, and why – when processing your transactions. Yes it can take some time to set up, but once it is set, tracking, reporting, and analyzing your financial information becomes easier, faster, and much more useful.   

    Crestwood Associates has implemented Microsoft Dynamics GP for many not-for-profit clients in the Chicago, Illinois area.  Contact us at [email protected] for assistance.

    By John Fischer, Account Executive, at Crestwood Associates, your Chicago area Microsoft Gold Certified Dynamics GP and CRM Partner.

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